Children's Minnesota, Blue Cross contract dispute could affect 70,000

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Dive Brief:

Children’s Hospitals and Clinics of Minnesota terminated its contract with Blue Cross and Blue Shield of Minnesota in a dispute that could leave 70,000 people out of network, the Minneapolis/St. Paul Business Journal reported.

The move, announced Wednesday, stems from Blue Cross' demands that the hospital system agree to discounts for patients covered by the state’s Medicaid program.

Unless an agreement is reached, Children’s will be considered out-of-network starting July 1 or December 31 if Blue Cross extends its current contract — forcing patients’ families to pay more of out pocket.

Dive Insight:

Provider-payer rate negotiations can be generally adversarial and this story doesn't show a different story.

Blue Cross and Blue Shield of Minnesota has been in the insurance game for about 80 years while Children's is the largest pediatric healthcare system in the region. Both actors have a fair amount of power to wield when it comes to what they bring to the negotiating table.

A recent Health Affairs study found insurance companies that have market shares of 15% or higher are able to negotiate significantly lower prices for medical services. In order to lower prices, insurers needed to have larger market shares when negotiating with larger provider groups than they did when negotiating with smaller provider groups, the study found.

Insurance companies, including Blue Cross, agreed to new state contacts to cover patients in Medical Assistance, Minnesota’s expanded Medicaid program. With increasing utilization rates, they say they’re now losing money on Medicaid enrollees.

Blue Cross says it currently pays Children’s up to double, in some cases, the rate that the state has set for direct Medicaid payment rate. The contract it offered Children’s Minnesota still exceeds market rates in recognition of the system’s high-level specialty services, the insurer adds.

Blue Cross-insured children accounted for more than 70,000 patient visits to Children’s last year. While the hospital didn’t say what proportion of those patients are on Medicaid, it noted that Children’s collects about 70 cents for each dollar spent actually caring for Medicaid patients. “Every dollar [providers] give up is, in a way, a dollar they are giving to a competitor," Dr. Tom Valdivia, co-founder and chief medical officer of Bright Health, a startup health insurance company, recently told Healthcare Dive.

“Unfortunately, while we negotiated in good faith with Blue Cross for more than six months, we have not been able to reach an agreement that preserves the level of payment required to offer the full range of services we provide as the region’s largest pediatric healthcare system,” Children’s Minnesota CEO Bob Bonar said in a release.